An equity portfolio manager (PM) has a concentrated portfolio. The portfolio consists of 1,000 shares of Tesla (TSLA) and 1,000 share of Walmart (WMT). The PM wants to immunize the portfolio against a large drop in the US stock market due to a sharp rise in perceived systemic risk.

Market: CME S&P 500 E-mini futures (Symbol ES) is amongst the world's most active and liquid future contracts.

1. Suggest a specific trade¹ that would likely meet the PMs objective Using CME's ES product. Please use current market data in your calculations.

1. Briefly describe a statistical technique the PM could use to estimate the relationship between the variability of her portfolio price performance against the market as a whole.

1. Briefly describe the settlement procedures for CME's ES contracts.

1. Specific trade means what is says. Provide as much detail as possible, e.g., size, initial price, contract month, direction, etc....

Answer rating: 100% (QA)

To immunize the portfolio against a large drop in the US stock market using CMEs ES product the portfolio manager PM can consider using a futures cont... View the full answer